Finding Love in All the Wrong Places

Finding Love in All the Wrong Places is a great song and great song title and what does it have to do with real estate?  Everything!

Yesterday we dialogued about the tremendous financial and emotional pressures that often accompany the selling or buying of a property. Finding Love in All the Wrong Places highlights one of the greatest dangers resulting from those pressures.

In real life all of us have our own issues with self worth, self esteem, feeling comfortable with who we are, how we look, the impressions we make and more. We all seek out people who support and encourage us, who believe in us and make us feel good about ourselves. Happily this often results in true love by both people. Sadly, it usually results in one person taking advantage of the other for his or her own selfish reasons.

Considering divorce rates in America over 50% of all first marriages end in divorce and in some states over 50% of second marriages end in divorce! These statistics don’t even consider the many more non-marriage relationships that fail. Some psychologists believe that the number of truly happy marriages is about 10-15%.

How does this relate to real estate? The number of happy seller agent or buyer agent relationships is also in the 10-15% range! There have been studies which show that six months after the closing neither buyer nor seller could even remember the name of their agent. Other studies show that over 90% of the time the seller does not hear from their agent until it is time to renew the listing agreement. It makes no difference if the agreement is for three months, or six, or nine or a year. Once signed the agent “disappears”. Buyers have the same issues.

There is a saying in real estate that “you want to be the first born son, the second wife and the third realtor.” Why is this? It is human nature. We all want to be told what we want to hear not what we need to hear. In real life it take some mistakes and lesson learning until we are ready to listen to what we need to hear rather than to what we want to hear. It is not about right or wrong it is just the way we are.

We all want to sell for at least 25% above the market. Yet, the market is just that, a market, a meeting of the minds and minds don’t meet when they are 25% apart. Buyers always want to buy for less, much less. Agents tell them the market is soft and they can “steal” properties. I am not talking about the difference of asking and selling price but about the true fair market value of a property.

Yesterday one of my consulting clients was approached to represent a buyer who has $800,000 and is only trying to buy properties worth $1,500,000. The buyer has worked with 2 different agents for more than nine months. My client asked what to do. I told him to sit the buyer down and in a kind and clear manner explain that he can achieve his goal in two ways. He can pay the market value of $1.5 or he can buy the market value of $800k. Last night my client called and told me the buyer was excited to understand and today they are going to look at and buy $800,000 properties.

What can you do to avoid Looking for Love in All the Wrong Places? Interview your agent careful. Make sure they are a professional and talk about market conditions and currents. Be sure the agent is focused on your goals. Be sure the agent gives you a “market reality check”. Ask for a list of references and check those references. Be sure the agent is not “over promising” which will only lead to “under delivering”. Be careful the agent always places your interests ahead of their interests. Be sure your agent is not competing with you and is not a builder or developer with their own properties to sell. Be certain the agent loves your property as much as you do and at the same time is aware of what needs to be done to maximize your value and gives you a plan to do it. Is there a plan to identify the most likely buyer or seller? What are the agent’s experience, knowledge, professional accomplishments and recognition? What is the size of the agent’s database and how is the data based used to generate business?  What % of their business comes from past client referrals?

There are many more questions you can ask, too many for this article today. If you have an immediate need for more questions please contact us and I will give them to you. If you ask these questions you will Find Love In All the Right Places, I guarantee it.

What Buyers Want

The most fundamental rule of all sales is “Find out what the buyers want and give the buyers what they want in the way they want it.”

This is a rule of sales. Obvious how true it is and how important it is. In every area of sales this rule is mandatory, except in real estate sales. The mystery is why sellers of real estate almost always choose to ignore the rule and then wonder why their property has not sold.

We hear so often, “I will not make changes to my property, I like the way it is, I do not care if buyers will not like it. I like it just find someone who has my tastes.” The list of non- business approaches to selling real estate goes on and on and on.

I recently watch a “make over this house” TV reality show. The house was an abomination by any standard. Finally, the frustrated TV host turned to the owner of the cluttered, filthy, piled high with junk home and said, “I have seen barns cleaner than this house.”The homeowner replied, “Oh good, my dream house was to live in a barn, I am so glad you like it.”

How many people do you know who want to live in a barn? By refusing to listen to the want and needs of the potential buyers that homeowner reduced the potential supply of buyers for her home to zero. Not a good approach to selling your home.

The house designer of course through out 98% of the junk, painted, cleaned, scrubbed and polished, and presented the home in the best possible manner and it sold for full price in two weeks!Once she got her check the “barn/homeowner” got over her anger at the designer for getting her “barn” sold.

Buying a home is about emotion, selling a house is about business. Sellers cannot afford to be emotional about the sale.Committing to selling should be a statement to the world that you are in business mode concerning your property. You have made a decision to take the emotions of your home and attach them to your future residence not your current residence.

The dreams attached to the property are going to be the buyer’s dreams not the seller’s dreams. As a seller you are going forward not staying stuck. If you loved a color of paint or tile in your old home put it in your new home. Do not make the mistake of insisting the buyer accept your taste. Take their money and let them have their dream while you go on to your new home with your new dream.

When you commit to selling, prepare your home to be attractive to the largest possible number of potential buyers. The more buyers you attract the greater your chance of a top dollar sale.

If you love purple walls paint them to a more neutral shade. If you have a run done garden, clean it up. If you are afraid the hot water heater will explode any day, put in a new one now. Put your self in the buyer’s shoes ask what would you want as a buyer. Do not ask what your are satisfied with as a seller, you will not get a check and will not achieve your goals or move to your new home if you do!

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Price Condition and Terms Equal Value

The seller sets an asking price. An asking or listing price is a statement of the seller’s wishes, needs and dreams. After 45 years in real estate and negotiating over three thousand contracts of sale, wishes, needs and dreams are NOT a reflection of the market.

Every realtor should be brave and honest and caring enough to tell seller’s the truth. The truth is the seller’s wishes needs and dreams are NOT the fair market value of a property. Buyers do not care about the wishes, needs and dreams of the seller. Buyers only care about their own wishes needs and dreams.

Think about it. When you made any major purchase did you care about the seller’s wishes dreams or needs? Of course not, you cared only about your own.A fair market value is determined when and only when buyers and sellers have the same wishes needs and dreams. That is when a contract and sale happen.

Both buyers and sellers must be cognizant of the wishes needs and dreams of the other in order to make a sale. When any one of the components is out of alignment nothing will happen, a sale will not happen. The seller will have failed in the goal of selling and the buyer will have failed in the goal of buying.

There are three main components which sellers and buyers must assess from their own perspective and the perspective of the other side. The three areas are price, condition and terms. Together they create value. While most people use price as a short hand or substitute for value, price and value are not the same.Price is a component of value, while value may be a component of price.

A perfect property will have a high price because it has a high value. A condemned property will have a low price because it has a low value. Price is a part of value.

Condition of the property is critical. Over the years we have developed and entire program about condition. Our program consistently produces higher sales prices because of improvements we suggest. Most of these improvements are very low or no cost. We will be sharing these in the weeks to come.

Terms are an area that few people ever think about in determining value yet it can be pivotal. The most common term attention getter is a cash offer by the buyer. That is a term that always gets the seller’s attention. Likewise, a seller’s demand for a cash deal cools the market.  Most markets are mortgage driven.  Second homes and strong seller markets may be cash only.  Cash definitely reduces the number of potential buyers.

Length of time till closing is another important term. Sellers usually want fast closing and buyers slow ones. Furnished or unfurnished is another common term bargaining point.

What action will you take with this information?

Choose to have a day and life of abundant health happiness peace and prosperity.

Simple Math Leads To Great Success

Buying and selling real estate is always about money.  Money is always about an exchange of value.  In the grocery store, on line or in the world of real estate a sale happens when the seller and buyer agree the fair market value of the item is equal to the price of the item.

In very simple math terms P=V=S.  When Price equals Value they equal a Sale.  No matter what the buyer or sellers says about the value of the thing a sale will not occur unless and until the buyer and seller agree as to value.

After more than 4,000 transactions I can assure you that I have heard all of the arguments buyers and sellers make as to why the buyer should pay more or the seller accept less.  Often the seller or buyer is right!

Experience shows that on average about half the time the seller is right and half the time the buyer is right.  There is no magic to the process.  Being right does not mean that a sale must occur.  Being right is irrelevant. It is irrelevant because it has nothing to do with making the sale.

A seller may be absolutely right about the value price relationship for his or her property.  Only time will show the rightness of his or her opinion.  If after a reasonable time the property is sold at or near the asking price the seller was right about the price value relationship.

On the other hand if the property does not sell at or near the asking price after a reasonable period of time then the seller was wrong about the price value relationship.  Flip the process around and look at it from the buyer’s perspective and you get the same results.  If the property does not sell the buyer was right. If the property does sell the buyer was wrong.

Another basic critical formula is P>V=NS.  If the Price is larger than the Value it equals No Sale.

The consequences of being right or wrong are very significant. The consequences are almost always measured in the tens of thousands of dollars.  There is no formula that will automatically tell you the dollar consequences of being wrong.

A rule of thumb that is fairly consistent around the country is that price reductions must be at least ten percent in order to be meaningful.  Price reductions of less than ten per cent simply do not register with the buyers.

Over pricing is a compounded problem because one ten per cent reduction may be inadequate.  Most sellers are reluctant to make multiple price reductions.  Generally sellers take six months before realizing their property is still overpriced.

How does a seller know when the price is approaching value, P=V?  It is easy.  There will be an increase in showings and there should be some offers.  After one or two negotiations if the seller and prospective buyers have not signed a contract the seller should consider another, perhaps smaller, price/value adjustment.

All the time the seller is spending a lot of money and not achieving the goal of selling.  The mortgage must be paid each month, the taxes must be paid and there may be homeowner association dues.  There also will be insurance costs, maintenance costs, repair costs, and a long list of smaller costs.  These costs all add up and are significant.

Overpricing results in non- quantifiable non-monetary loss that in many ways will exceed the monetary loss.  The stress and strains on a family that is stuck in limbo between a goal of selling and a reality of not selling are considerable and not to be taken lightly.

There is a third formula and it is very important.  It is especially important in a declining market.  The formula is P<V=FS Price is Less than Value equals a Fast Sale.

In a declining market sellers also incur significant losses to the true value of the property if they fail to sell. Millions of sellers are still reeling from the declining values of the past years. In some parts of America those losses have been in the 50-60% range and prices are still falling!

In a declining market the seller must get out in front of the market.  Depending on the rate of decline it may be impossible to “know” the fair market value of a property, the point where P=V.  The only option open to a seller is to price the property so attractively that it will produce at least one buyer.  If it produces more than one buy enjoy the bidding war.

In a rising market, the market may allow the sellers to be as aggressive and the market will “cover” the mistake of being aggressive.  In a declining market the market will “uncover” the mistake of a seller not being aggressive enough.

In a rising market failure to act will cost the buyer tens of thousands of dollars. In a declining market failure to act will cost the seller tens of thousands of dollars.

If you use these three formulas properly you will have great success in any market.

Cash is King But…

In hot markets or cold markets cash is king.  Buyers with cash especially in buyer’s markets are adored.  Sellers roll out red carpets for cash buyers.  Cash deals are usually smoother and faster.

There are two common misconceptions about buying for cash.  Many cash buyers believe they are insulated from the rise and fall of markets. Cash owners believe they are under less pressure than financed buyer/owners.

Despite these obvious benefits of buying/owning for cash there are issues.  When values fall the cash purchaser suffers an immediate direct loss.  A mortgage buyer has leverage.  The mortgaged buyer owns 5-10-20% of the home and the bank “owns” the rest.  If values fall the loss in a certain sense is shared.

When a home is bought for cash the owner does not have to worry about losing the house to the bank.  The owner does feel the full extent of each dollar value of falling values.  There is no shared loss for a cash buyer/owner.  The cash buyer/owner should feel the dollars coming out of his or her pocket.

Being a cash buyer/owner often gives a false sense of security. All to often such thinking causes these owners to hold on to declining value properties all too long.

A loss is a loss.  When values decline and look like they are going to continue to decline it is time to cut your losses and move on.  Sharing the loss with your mortgagee does not make it better.  Absorbing the entire loss yourself does not make it better.

Mortgage free does not mean debt free or even worry free.  Every day we hear reports of cash owners who felt they were immune to suffering losses.  A shared loss is bad and a fully absorbed loss is really, really bad.

Interestingly many real buyers do not want to deal with cash buyer owners.  The buyers often think that the absence of a mortgage reduces the pressure on the seller and makes them more resistant to selling.  There is truth and validity in this approach.  Some cash purchased sellers do feel and act as if they are not under pressure.

There are many such sellers who are under tremendous pressure to sell.  These sellers are extremely anxious to cut their losses.  They want to put their money to work rather than watch it disappear.

Buyers always ask, “who is in foreclosure, who really is under pressure from the banks”.  Buyers rarely ask the really important question, “who is the most motivated seller”.  As a buyer are you most interested in the most motivated seller or the most motivated seller with a mortgage?  The answer is obvious yet the question is really asked.

If you are a seller without a mortgage you must make it very clear that you are motivated.  You do that by working closely with your broker so that your asking price is what the market perceives as fair market value.

Don’t give the buyers reason to believe you are not motivated.  Give the buyers reason to believe you are very motivated.

I have worked in markets that were only cash markets.  It did not matter if it was a sellers market or a buyers market for a variety of reasons all transactions were cash sales.

When the markets softened many buyers missed great opportunities because they worked under the belief that a seller without a mortgage could not be motivated.  Those buyers were so far from the truth and they missed many a great purchase.

Many vacation and second homes are cash only transactions.  Almost all third or more home purchases are cash purchases.  Many very high value purchases are cash only.  Almost all international purchases are cash purchases.

Many people who buy for cash are fully invested.  Any downturn in values has an immediate negative effect on their portfolios.

Lastly many cash owners do borrow to make the purchase.  They get stock portfolio loans, 2^nd mortgages on other properties, home equity loans on their primary residence, pledge bank accounts, use lines of credit etc.  The mortgage or lien is not on the “cash” property but rest assured there is a mortgage or lien somewhere on something of value.

Cash is king and a cash based seller may be just as vulnerable or even more vulnerable than a seller with a mortgage.

The Lesson of the Papaya

Do you remember the endless debates about free will?  Do you remember having to read thick books written hundreds of years ago about the people having free will or not having it?  Do you remember that the debates today are exactly the same as the ancient ones?

This is a true story about free will.  Anyone who goes to the food market knows this is a true story.  What so many real estate buyers and sellers forget is the real estate market is exactly like the food market.  The lesson of the papaya is simple.  Everyone has free will.

We like to have papaya for breakfast.  Usually it is not a problem as several food markets in the neighborhood carry a nice supply of papaya.  There are two primary markets we regularly shop at and we have several backups as well.

The two primary markets have a different approach to selling papaya.  One market sells papaya by weight while the other store sells by the piece.

The market “A” sells by weight.  It always has top quality and always charges a high price.  Because the quality is so good and the price is high and it is sold by weight the price for even a small papaya is often higher than the competitor’s price for a large one.

Market “B” always sells by the piece. A small papaya is the same cost as a large one.  The quality often varies.  Sometimes they are as good as the competition; often they are very good but not as good as the competition. Sometimes they are below average.

If you get to store “B” before everyone else you can buy the biggest sweetest papaya at a great price.  If you do not beat the crowd you will pay the same price per papaya but the real sweet large ones will have been sold and you have a fewer and poorer choices.  Now your price per pound has gone up while the quality has gone down.

Being smart shoppers we go to store “B” first and we always beat the crowd. We buy the highest quality the largest size and at the lowest unit price.  This is smart shopping.

This is how most people shop.  Shopping is shopping.  People buy the highest value.  Food markets and real estate are the same because they are a market where supply demand and free will apply.

We began our shopping as usual at store “B” because it always offers the highest value papaya.  We were shocked when the clerk said she had only two really good papayas that she saved for us.  There was a problem at the papaya farm and only a few cases had been shipped instead of the dozens and dozens of a normal delivery.  We of course bought the two and thanked our friend profusely.

We headed right for market “A” planning to buy the highest quality, smaller and more expensive papayas to complete our order.  We were in for another shock.  The clerk said there was a problem at the farm.  They also received just a few papaya.  Because the supply was small they had to raise the price!  We bought two more and consoled ourselves in the knowledge the quality was superb and worth the higher cost.

We went to market “C”.  They did not have any papaya.  We realized all the markets bought from the same supplier.  The supply was way down, quality was down and prices were going to go up.

Market “D” told us the same story.  They did not have any papaya because the farm wanted too much money for below average quality.  The owner of store “D” exercised his free will and decided he was better off not selling any papaya rather than buying expensive low quality papaya and perhaps not selling them.  This market by exercising its free will did not even give us the chance to exercise our free will.

Market “E” was the opposite from market “D”.  He had a few really small bruised and poor looking papaya for sale at double the price of market “B”.  We exercised our free will and decided we would rather eat a different breakfast than to spend so much money for such poor quality.

Our last market was a real surprise.  It had beautiful small high quality papaya.  We asked where did you get these?  The owner said I realized there was a supply problem.  I immediately went to “market “A” and bought almost all they had.  As I control the supply side of the market I have decided to triple the price.  I will make a killing if only I can find people willing to pay the price.

We exercised our free will and left without buying.  We will enjoy the fairly priced quality papaya we bought.  We also will enjoy something besides papaya the rest of the week.

The lesson of the papaya is that neither sellers nor buyers have to sell or buy.  Markets are about people saying yes and people saying no.  When they say yes there is a sale and when they say no nothing happens.

Do you listen to the law of supply and demand? Do you exercise your free will?

What Do You Really Want From Your Realtor?

This is not a trick question.  What is surprising is how consistent the answers are and how inconsistent the actions of buyers and sellers are.

Buyers and sellers both say they want their realtor to represent them.  They want their realtor to be an advocate.  They want their realtor to help them sell or buy for the best price possible in the market.  They want a quick and easy transaction.

What is the reality?  The good news is there are buyers and sellers who act consistent with their expectations of their agent.  After thousands of sales many years in the business and talking and sharing with great agents around the world, I believe that about 10% do as they say and 90% act contrary to their own beliefs and self interests.

Many of the conflicts center on the idea of representation and advocacy.  In the real world representation is about protecting your best interests.  In real estate it is about achieving your goal of buying or selling at the best price possible in the market.  It means buying or selling as fast as is prudent and wise.  It means doing everything possible to have a smooth stress free positive experience.

These three primary goals fall victim to a distorted understanding of advocacy and representation

.  Advocacy does not mean beating the other side into the ground.  It does not mean the score reads you 100 the other side 0.

If I, and every realtor I know, had $1.00 for each seller or buyer who said, “ I want you to go back and demand that the other side do exactly what I want or there is no deal” all of us would be very well off.   Winning 100 to 0 always means a sale will not take place.  Winning 100 to 0 means you won the battle and lost the war.

Compromise is not a sin.  Negotiation is not compromise.  Advocacy is not compromise.  Advocacy, negotiation and compromise are about working to give everyone the maximum win- win possible. Compromise is about giving up what is not really important in order to get what is really important.  Negotiation is the process of compromise. Skilled advocacy produces is the means to negotiation and successful compromise.

A good advocate and representative will always keep your eye on the goal, which is to buy or sell the property.  It does not make a difference what battle you wrongfully choose to fight if it means you are going to lose the war.

Sellers often insist on listing prices that are unrealistic because they are not in accord with the market.  What is the point of asking 20or 30 % above the market?  There is no point in a tough sellers market for asking even 1% above the market.

Sellers often justify their decision by “allowing room to negotiate”.  You will have negotiating room.  You will not have anyone to negotiate with.  What is the wisdom?

Sellers often say, “I only need one buyer”.  True but you need a buyer.  The idea that people over pay and do so by double- digit margins, is nonsense.

Sellers often say, “I have plenty of time I do not have to sell”.  If that is true why are you wasting your time and everyone else’s time?

The buyers have their own self-defeating behaviors.  They match the seller issue for issue.   It is pointless.  To achieve any goal you have to act in a manner consistent with achieving your goal.

Neither sellers nor buyers can defy the market.  Sellers will have to take less than they would like.  Buyers will have to pay more than they would like.  It is how markets operate.  It is how egos work.  It is the only way for the seller to sell or for the buyer to buy.

If you insist upon over riding the wisdom, knowledge and experience of your realtor why hire the realtor in the first instance?  What is the wisdom of hiring your expert and then ignoring their wisdom?

Any seller or buyer can pound the table, shout, scream and demand.  It takes a wise person to remain calm cool and collect the prize of achieving the goal, a sale.

If you refuse to honor the market you will fail.  When you fail there will only be one person to blame.  If you look in the mirror you will see the person at fault.